On July 4, 2025, Congress passed the sweeping One Big Beautiful Bill Act (OBBBA), a massive federal budget and tax package championed by the Trump administration. While headlines focused on tax cuts and healthcare reforms, the ripple effects for federal grants are real and worth understanding.
Let’s break down what’s changing, what’s not, and how innovators can stay ahead.
A Quick Overview: What’s in the Bill?
The OBBBA is essentially a multi-pronged deal that:
- Raises the debt ceiling by $5 trillion.
- Cuts taxes significantly over the next decade.
- Reduces Medicaid and SNAP (food assistance) budgets dramatically.
- Repeals several climate-focused funding programs and clean energy tax credits.
- Expands Pell Grants for workforce training (starting in mid-2026).
- Makes some long-sought fixes to how R&D expenses are treated on taxes.
SBIR/STTR programs weren’t mentioned by name, but they live within this budget ecosystem. And the environment just got tighter.
R&D Deduction Fix: A Win for SBIR Companies
One of the clearer wins in the bill is the fix to IRS Section 174: companies can once again immediately deduct domestic R&D expenses, instead of amortizing them over five years. This retroactive fix applies to most small businesses.
If you’re an SBIR/STTR awardee from 2022–2024, this could mean real tax relief and a great reason to talk to your accountant about amending prior returns.
But the Budget Cuts Raise Red Flags
Even though SBIR/STTR funds are technically “set-aside” percentages from larger agency R&D budgets, they aren’t immune to the big-picture pressures.
1. Shrinking Agency Budgets = Smaller SBIR Pools
Agencies like NIH and NSF already face proposed or actual cuts for FY2026. If a parent agency’s research budget drops, so does the pie from which SBIR/STTR is carved. We’ve already seen paylines and award rates tighten—and that trend may continue.
2. Delay Is the New Normal
Earlier this year, award announcements were severely delayed due to debt ceiling uncertainty. Now that borrowing authority is restored, we’re seeing some movement, but agencies remain cautious. Expect slow starts, shifting timelines, and extra scrutiny on budgets.
3. The End of the Climate Wave
Startups working on clean energy or climate innovation (especially those targeting DOE or EPA SBIRs) face a tougher road. OBBBA repeals many clean energy credits and climate grants, reducing aligned follow-on funding sources that often complement SBIRs.
Startups in Underserved Areas May Be Hit Hardest
Cuts to Medicaid and workforce programs may seem unrelated to tech R&D, but they matter. Many SBIR/STTR applicants operate in or partner with rural hospitals, underserved universities, or community-based research hubs. These institutions rely on stable federal support. When those dry up, the SBIR ecosystem suffers too.
The Big Picture: Leaner Years Are Coming
This bill isn’t a targeted attack on SBIR/STTR, it’s a macroeconomic shift. But if you’ve been watching funding trends this year, you know: it’s already having an impact.
We’ve seen:
- Fewer total NSF awards year-over-year.
- Compressed award sizes on some agency programs.
- More proposals chasing fewer dollars.
And with OBBBA’s long-term deficit increase and massive tax cuts, we can’t expect budget surpluses anytime soon. SBIR hopefuls will need to compete smarter, write tighter, and align proposals more strategically than ever.
What You Can Do Now
Here’s how to stay in the game:
- Watch agency SBIR timelines closely, especially if you’re in energy, health, or agriculture sectors.
- Adjust proposal strategy: make a sharper case for commercialization, value-for-money, and alignment with agency goals.
- Diversify: Consider dual-path funding strategies that blend SBIR with private capital, state-level innovation programs, or follow-on contracts.